Stocks Mostly Higher into Final Hour on Short-Covering, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Healthcare longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges, some of my (EEM) short and added to my (ISRG) long today, thus leaving the Portfolio 100% net long. The tone of the market is slightly bullish as the advance/decline line is mildly higher, most sectors are rising and volume is below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling .21% and is elevated at 43.31. The ISE Sentiment Index is below average at 120.0 and the total put/call is above average at 1.08. Finally, the NYSE Arms has been running high most of the day, hitting 1.43 at its intraday peak, and is currently 1.06. The Euro Financial Sector Credit Default Swap Index is rising 2.72% today to 97.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising 3.0% to 203.0 basis points. The TED spread is down 2.42% to 127 basis points. The TED spread is now down 339 basis points in about three months. The 2-year swap spread is plunging another 9.49% to 57.25 basis points. The Libor-OIS spread is falling 3.89% to 117 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to .54%, which is down 221 basis points in about six months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .08%, which is down 1 basis point today. Volume was light again, with a high NYSE Arms reading, during the lows of this morning’s sell-off. As well, the total put/call has been running pretty high the last few days. It appears to me the bears lack firepower or will at this point. The recent pullback has little energy behind it. A “horrific” jobs’ report tomorrow is likely priced into the market. Any initial kneejerk sell-off in stocks related to this report in the morning will likely be short-lived. Nikkei futures indicate an +120 open in Japan and DAX futures indicate an +41 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, diminishing credit market angst and short-covering.